Balancing Act

You are a business owner whose day begins well before the sun rises: you need to get the children dressed and to school, attend a 7:30 meeting, get started on email via the Blackberry, get to the office to find employees having problems, return voicemail messages and discover business operations that need addressing. This is all before 9:00 a.m. During the day, you have customers, vendors and your CPA begging for your attention before your children need to be taxied to tutoring or soccer, your spouse needs help at home and you still need to engage in business planning, balance the day’s financials and review business performance. How do you balance life’s needs in running a business?

While there are countless resources on the subject, people continue to feel the pressures of managing their personal, family and business lives. Each day puts direct and indirect pressure on our lives to act a certain way, obtain certain goals, and engage in certain activities. We receive countless messages on what our lives should look like, feel like and achieve. Add those pressures to the reality of your day, and you have a much stressed out situation.

To combat life and work toward balance, the Mayo Clinic has the following tips to consider:

1. Keep a log. We all have 168 hours a week, no more or no less. Try to track everything you do for one week and how much time it takes (even brushing your teeth) so that you can account for the 168 hour week. Review your week and see what activities you are doing for necessity, that you enjoy and that you could live without. For the “live without” items, can you delegate or outsource those at work and/or at home?
2. Learn to say no. Whether it’s a civic club asking you to spearhead an extra project or your child’s teacher asking you to manage the class play, remember that it’s OK to respectfully say no. When you quit doing the things you only do out of guilt or a false sense of obligation, you’ll make more room in your life for the activities that are meaningful to you.
3. Leave work at work. With today’s global business mentality and the technology to connect to anyone at any time from virtually anywhere, there’s no boundary between work and home — unless you create it. Make a conscious decision to separate work time from personal time.
4. Manage your time. Organize household tasks efficiently. Doing one or two loads of laundry every day, rather than saving it all for your day off, and running errands in batches are good places to begin. A weekly family calendar of important dates and a daily list of to-dos will help you avoid deadline panic. Include your children in adding their calendar items too.
5. Communicate clearly. Limit time-consuming misunderstandings by communicating clearly and listening carefully. Take notes if necessary.
6. Nurture yourself. Set aside time at least once a week (preferably more) for an activity that you enjoy, such as walking, working out or listening to music.
7. Set aside one night each week for recreation. Take the phone off the hook, power down the computer and turn off the TV. Discover activities you can do with your partner, family or friends, such as playing golf, fishing or canoeing. Making time for activities you enjoy will rejuvenate you.
8. Protect your day off. Try to schedule some of your routine chores on workdays so that your days off are more relaxing.
9. Get enough sleep. There’s nothing as stressful and potentially dangerous as working when you’re sleep-deprived. Not only is your productivity affected, but also you can make costly mistakes. You may then have to work even more hours to make up for these mistakes.
10. Bolster your support system. Find a mentor (you can have more than one) to help you with your business. This gives you an outlet for the various challenges you will face in being a business owner away from others in your life who may not be able to give you the support you need.

Business Ownership

Opening a business and being one’s own boss is as much a part of the American dream as owning a home. In fact, being self employed or an entrepreneur is gaining a great amount of attention in this country’s economy. Citizens of this country are blessed with the freedom to start a business and enter an endless number of markets.

However, opening and running a business is not as easy as many make it seem. If you have flipped channels in the middle of the night, a funny looking man with question marks on his clothes lure others into the idea that there are numerous funds available for people to start their own businesses or that you can earn thousands working from home. This gentleman along with other copy cats is selling you untruths in order to sell their own books.

Business service providers, like the Innovation and Entrepreneurship Center, wish there were easier ways to finance a business like the infomercials suggest. However, the reality is there are no free grant funds for people to start or grow their businesses. There are a small number of technology grants available to companies willing to engage in research and development for departments of the Federal government. These grant funds are highly competitive and come with many strings attached to the funding.

Moving forward on a business, the entrepreneur needs to be prepared to address the financial needs for the business. The entrepreneur needs to be able to sustain their personal finances first before moving toward opening the business. Rarely is a business profitable as quickly as the entrepreneur may think. Planning to sustain his/her personal finances is the first step in starting the business.

In the planning process of opening the business, the entrepreneur should prepare conservative financial statements. These financial statements should identify how much capital is needed to start the business. If the company requires more funds than the entrepreneur has, then he needs to seek outside financing to help open the doors. Usually, a business will seek out a business loan to help pay for the materials, inventory or equipment needed to operate the business.

The first place an entrepreneur should look for additional capital in starting their business is through what is commonly called “friends, family and fools (fff).” This form of capital is the easiest to find and obtain. After seeking support from friends or family, bank loans are often sought after. If your business is entering a fast growth industry and your capital requirements are great, then venture or angel funding may be needed.

Regardless of the type of capital source the business seeks, the entrepreneur needs to prepare a business plan, sound financial statements, and form a solid management team for the business. In addition to preparing the business for capital, the business owner must prepare their own financial worthiness. A good credit score or a cleaned-up credit report will be needed for the business.

The first step towards understanding business capital comes with learning as much as possible about the options, opportunities and the requirements of money and one’s business. Utilizing resources like the Small Business Development Center or the Innovation and Entrepreneurship Center are good places to start.

New Myths about Entrepreneurship

Guy Kawasaki in his blog, “How to Change the World” (http://blog.guykawasaki.com/2008/01/top-ten-myths-o.html), invited Scott Shane to share his myths about entrepreneurship. Scott Shane shares these and other tips in his new book, The Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By. I am repeating/quoting the information from this blog, because I believe entrepreneurs need to understand these myths.

1.       It takes a lot of money to finance a new business. Not true. The typical start-up only requires about $25,000 to get going. The successful entrepreneurs who don’t believe the myth design their businesses to work with little cash. They borrow instead of paying for things. They rent instead of buy. And they turn fixed costs into variable costs by, say, paying people commissions instead of salaries.

2.       Venture capitalists are a good place to go for start-up money. Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and seventy-two percent of the companies that got VC money over the past fifteen or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about one in 4,000. That’s worse than the odds that you will die from a fall in the shower.

3.       Most business angels are rich. If rich means being an accredited investor –a person with a net worth of more than $1 million or an annual income of $200,000 per year if single and $300,000 if married – then the answer is “no.” Almost three quarters of the people who provide capital to fund the start-ups of other people who are not friends, neighbors, co-workers, or family don’t meet SEC accreditation requirements. In fact, thirty-two percent have a household income of $40,000 per year or less and seventeen percent have a negative net worth.

4.       Start-ups can’t be financed with debt. Actually, debt is more common than equity. According to the Federal Reserve’s Survey of Small Business Finances, fifty-three percent of the financing of companies that are two years old or younger comes from debt and only forty-seven percent comes from equity. So a lot of entrepreneurs out there are using debt rather than equity to fund their companies.

5.       Banks don’t lend money to start-ups. This is another myth. Again, the Federal Reserve data shows that banks account for sixteen percent of all the financing provided to companies that are two years old or younger. While sixteen percent might not seem that high, it is three percent higher than the amount of money provided by the next highest source – trade creditors – and is higher than a bunch of other sources that everyone talks about going to: friends and family, business angels, venture capitalists, strategic investors, and government agencies.

6.       Most entrepreneurs start businesses in attractive industries. Sadly, the opposite is true. Most entrepreneurs head right for the worst industries for start-ups. The correlation between the number of entrepreneurs starting businesses in an industry and the number of companies failing in the industry is 0.77. That means that most entrepreneurs are picking industries in which they are mostlikely to fail.

7.       The growth of a start-up depends more on an entrepreneur’s talent than on the business he chooses. Sorry to deflate some egos here, but the industry you choose to start your company has a huge effect on the odds that it will grow. Over the past twenty years or so, about 4.2 percent of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the U.S. 0.005 percent of start-ups in the hotel and motel industry and 0.007 percent of start-up eating and drinking establishments made the Inc. 500. That means the odds that you will make the Inc 500 are 840 times higher if you start a computer company than if you start a hotel or motel. There is nothing anyone has discovered about the effects of entrepreneurial talent that has a similar magnitude effect on the growth of new businesses.

8.       Most entrepreneurs are successful financially. Sorry, this is another myth. Entrepreneurship creates a lot of wealth, but it is very unevenly distributed. The typical profit of an owner-managed business is $39,000 per year. Only the top ten percent of entrepreneurs earn more money than employees. And the typical entrepreneur earns less money than he otherwise would have earned working for someone else.

9.       Many start-ups achieve the sales growth projections that equity investors are looking for. Not even close. Of the 590,000 or so new businesses with at least one employee founded in this country every year, data from the U.S. Census shows that less than 200 reach the $100 million in sales in six years that venture capitalists talk about looking for. About 500 firms reach the $50 million in sales that the sophisticated angels, like the ones at Tech Coast Angels and the Band of Angels talk about. In fact, only about 9,500 companies reach $5 million in sales in that amount of time.

10.   Starting a business is easy. Actually it isn’t, and most people who begin the process of starting a company fail to get one up and running. Seven years after beginning the process of starting a business, only one-third of people have a new company with positive cash flow greater than the salary and expenses of the owner for more than three consecutive months.

The Business Plan

For many eager entrepreneurs, the business plan is a dreaded burden. Many see it as an obstacle to starting their business, yet others simply don’t see a reason to take the time to create such a document. Unfortunately, many entrepreneurs simply skip the process of writing a business plan to jump right into their business. While some businesses may survive with this renegade spirit, many more start struggling to survive. The business plan may seem complex to newcomers, however it is an exercise to assist the entrepreneur prepare and plan for the business. Essentially, it is a road map with the route mapped out for the business. It is an opportunity to see if the business is worth the time and investment before the business opens.

While time to do the necessary research, writing and financial planning are essential, the effort is well spent seeing if the idea is feasible. The business plan is intended to help start the process of researching, planning and preparing for operations. However, businesses are ever changing, and entrepreneurs need to incorporate ongoing research and planning into their business in an effort to adapt to changing markets.

The business plan acts as the first sales and marketing piece produced for a business, because the document is needed to communicate to potential investors. This one document allows investors to learn about the business, the market the business wishes to enter, how much capital is needed to start the business and what goals the business intends to reach. The business plan allows an investor to understand the risks involved with the business and what steps are being taken to minimize those risks. Most importantly, investors are looking for indicators for a good return on their investment (ROI) as well as how long it may take for the business to deliver that ROI.

While the business owner should give careful consideration to the whole business plan, the two critical sections others will review first are the executive summary and the pro formas (financial statements). The executive summary should be the last piece written in the business plan. This section summarizes the whole business plan into a few paragraphs. The executive summary should express what the business is, what the product or service is, describe the company vision, summarize the financials and capital needs as well as summarize the goals and management team.

In addition to the executive summary, the pro forma statements are vital to creating a sound business plan. This section allows readers to quickly find how much capital the company is seeking as well as learn about how long it will take the company to earn profits.

The pro forma section includes several documents that should paint a picture of what is needed to keep the company alive. To start, new business owners often need to prepare personal financial statements to include in this section, depending on the type of business, how much capital he/she is seeking and the requirements of the capital source. (Note: Entrepreneurs who are unable to show a sound personal financial background may need to take steps to clean up their finances first before seeking business capital.)

Next, all business plans should engage in research to get a realistic grasp of what sort of startup expenses the business will have. Talking to other business owners in similar industries, researching product expenses and other research should yield realistic figures to use in your projections. With startup expenses in hand, the business plan will need to include a 12-month profit and loss projection (or estimate). This needs to include how much in sales this new company needs to make. After the 12-month projection is complete, the business owner will need to create a profit and loss projection for a 4-5 year period.

After the profit and loss statements, an estimated cash flow statement is the next step. This will allow the business owner to plan for how much money will be needed before the doors open as well as see how much cash is needed to keep the doors open. In conjunction to the cash flow statement is the balance sheet. A balance sheet shows what items of value are owned by the company and how much the company owes in debts. The balance sheet is a key document to show the health of the company at any given moment, and it gives investors a quick glimpse into the “bottom line.”

Some entrepreneurs may include a break-even analysis in their business plans. This tool allows business owners to predict sales volume at their chosen price to recover the total costs in running the business. This calculation allows business owners see how much sales they need in order to run the business with a profit.

The marketing component to the business plan is a key aspect for the business owner to understand. Knowing who the customer is, what the spending habits of the customer are, who are the direct and indirect competitors for those customer dollars and where to find the customers are critical components to help the business plan its entry into the market. The marketing plan is far more comprehensive than simply creating an advertising plan. This section is where your research data will help you make even the smallest decision about your business. Your decisions need to be entirely about your customers, since they are the reason why you have a business.

Business planning can seem overwhelming to the new entrepreneur. However, the time and effort spent on researching and carefully planning a business will allow the business owner to start on a solid foundation. We all know what happened to the three little pigs, starting a business requires the same time and attention. Additional resources to help you with your business plan include the Small Business Development Center (http://asbdc.ualr.edu/), SCORE (www.score.org) or the IEC (www.iecfs.org).

Introduction to The IEC Blog

I have been talking with entrepreneurs for several months about the power they can capture through blogs both in writing a blog and in making comments to other blogs. As I have kept a personal blog several years ago before the term “blog” was even discussed as well as this past year’s adventures, I felt it was time to add a blog to the Innovation and Entrepreneurship Center’s website. While the physical blog lies on WordPress.com’s server, this blog will serve the purpose of sharing entrepreneurship professional development tidbits.

Enjoy the information!

Michelle Stockman